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Spain seals exit from two-year recession in third quarter

MADRID (Reuters) - Spain's economy grew between July and September after contracting for nine quarters and inflation eased in October, data showed on Wednesday, laying the foundations for an upturn in dire domestic demand.

Gross domestic product (GDP) inched 0.1 percent higher in the third quarter from the second, state statistics agency INE said, marking the first time the economy has grown since the beginning of 2011 and officially ending a two-year recession.

The growth rate, from preliminary figures, confirmed a report released last week by the Bank of Spain.

Spain's economy has been shrinking, or near flat, since a decade-long property bubble burst in 2008, leaving millions out of work and thousands of companies out of business.

"Growth seems to be due to the strength of the external sector, which is encouraging, and business surveys suggest there may be more of that to come in the near term," said Ben May, economist at Capital Economics.

"However, domestic demand is still contracting and against that backdrop it's hard to see a strong and sustained recovery."

INE confirmed that third quarter output was supported by exports, the only area of growth since the recession began, and a busy tourist season as holidaymakers shied away from resorts in the politically troubled Middle East and northern Africa.

Domestic consumption has plummeted since the property crash, though the first increase in retail sales after over three years of contraction in September suggested the worst of the downturn could be over.

Depressed high-street spending could see a slight boost from an easing of inflationary pressures.

Consumer prices rose just 0.1 percent in October, according to preliminary data for European-harmonised inflation on Wednesday, the lowest annual increase in four years.

National prices fell 0.1 percent, the first drop since October 2009 and mostly due to a 3-percentage-point increase in value added tax in September 2012.